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Health Care Insurance Mandate Held Unconstitutional

A federal district court has held that the health
care reform legislation’s mandate that individuals
obtain health insurance is unconstitutional (Virginia v. Sebelius, No. 3:10-CV-188 (E.D. Va. 12/13/10)). In so
holding, however, the court severed that mandate from
the rest of the health care reform legislation and
refused to enjoin enforcement, pending appeal of the
case.

The Patient Protection and Affordable
Care Act, P.L. 111-148, enacted new Sec. 5000A, which
requires U.S. citizens and legal residents to maintain
minimum amounts of health insurance coverage, starting
in 2014. Individuals who fail to maintain minimum
essential coverage will be subject to a penalty. The
Commonwealth of Virginia challenged the
constitutionality of this provision in a suit against
the secretary of the Department of Health and Human
Services.

Virginia claimed that Sec. 5000A exceeds
Congress’s power under the Commerce and the General
Welfare clauses of the U.S. Constitution. Specifically,
Virginia contended that:

The individual
insurance mandate goes beyond the outer limits of the
Commerce Clause in that it requires otherwise
unwilling participants to purchase insurance from a
private vendor, an economic activity “not historically
subject to federal regulation under the Commerce
Clause.”

The individual insurance
mandate and associated penalty are not a legitimate
exercise of congressional power to tax under the
General Welfare Clause.

Virginia also
argued in the alternative that Sec. 5000A conflicts with
the Virginia Health Care Freedom Act and therefore
violates the Tenth Amendment.

In its opinion, the
court said the constitutional issues boil down to “the
single question of whether or not Congress has the power
to regulate—and tax—a citizen’s decision not to
participate in interstate commerce.” It noted that “[n]o
reported case from any federal appellate court has
extended the Commerce Clause or Tax Clause to include
the regulation of a person’s decision not to purchase a
product, notwithstanding its effect on interstate
commerce.”

The Department of Health and Human
Services argued that the individual insurance mandate is
“well within the traditional bounds of Congress’s
Article I powers” and corrects systemic failures in the
interstate health insurance market, which is within
Congress’s power to regulate under the Commerce Clause.
The department also disputed Virginia’s contention that
the individual insurance mandate compels individuals who
do not wish to purchase insurance to participate in the
health insurance market. Rather, the department argued,
at some point every individual will need some form of
health care and, absent insurance, most will “shift the
cost of that care to the rest of society.”

Both
parties moved for summary judgment, which should be
granted when it is shown that “there is no genuine issue
as to any material fact and that the movant is entitled
to judgment as a matter of law” (Fed. R. Civ. Pro.
56(c)(2)).

The court noted that “[n]either the
Supreme Court nor any federal circuit court of appeals
has extended Commerce Clause powers to compel an
individual to involuntarily enter the stream of commerce
by purchasing a commodity in the private market” and
therefore held that the individual insurance mandate
exceeded Congress’s Commerce Clause powers.

The
court also held that the penalty is, “in form and
substance, a penalty as opposed to a tax.” As a penalty,
it must be linked to an enumerated constitutional power
(other than the General Welfare Clause). The court found
the penalty to be linked to the Commerce Clause and,
since the court had held that the individual insurance
mandate exceeded Congress’s power under the Commerce
Clause, held that the penalty was unconstitutional as
well.

The court refused to strike down the rest of
the health care reform legislation, following the
judicial standard that “when confronting a
constitutional flaw in a statute, we try to limit the
solution to the problem, severing any ‘problematic
portions while leaving the remainder intact.’”
Therefore, the court applied its holding only to the
section of the law at issue.

The court also
refused to enjoin implementation of Sec. 5000A because
it does not take effect until 2014 and because the case
will be appealed. As the court noted, “the final word
will undoubtedly reside with a higher court.”

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The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.

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